Texas banks fret over proposed IRS rule

Published 5:30 am, Saturday, April 23, 2011

Some Texas bankers fear Mexican nationals will yank their deposits if the institutions are required to report to the Internal Revenue Service the interest income non-U.S. residents earn.

The Treasury Department has proposed the rule as a way to strengthen the United States' ability to share tax information with other countries. The agency contends the reporting requirement also could help detect American taxpayers who are evading U.S. taxes by fraudulently claiming foreign status.

But such a requirement would drive billions of dollars in deposits to other countries from banks in Texas and other parts the country, hindering the economic recovery, bankers argue. About a trillion dollars in deposits from foreign nationals are in U.S. bank accounts, according to some estimates.

Privacy, safety concerns

The issue is of particular concern to some banks in South Texas, where many Mexican nationals have moved deposits because they don't feel their money is safe in institutions in Mexico.

Under a treaty with the U.S., Mexican nationals don't pay taxes on investment income to the IRS. So a requirement that banks report their interest income to the IRS raises privacy and safety concerns for nonresidents, bankers and other observers say.

"This proposal has caused a wave of panic in Mexico," said Lindsay Martin, an estate-planning lawyer with Oppenheimer Blend Harrison + Tate in San Antonio. He has received in recent weeks more than a dozen calls from Mexican nationals and U.S.-based financial planners with questions on the rule.

Sen. Carl Levin, D-Mich., who chairs a subcommittee that has investigated offshore tax havens, disputed that the reporting requirement would cause foreign nationals to move their deposits.

No support

"Several of them have said if it were to happen, then there's no reason for us to have our money here anymore," he said.

Many Mexican nationals worry that the data could end up in the wrong hands, jeopardizing their safety.

If people in Mexico and some South American nations find out they have a million dollars in an FDIC-insured account in the United States, "their families could be kidnapped," added Alex Sanchez, president of the Florida Bankers Association.